Both exchanges have since adopted a seasoning period for new listings, forcing applicants to provide a full year of audited financials before they could trade on the market.
In response to written questions from ABC News, NASDAQ CEO Greifeld said the seasoning period was one of "a number of decisive and fair steps" taken in 2010, once the markets began seeing evidence of a problem.
The NASDAQ imposed more stringent qualifying criteria for companies using "reverse mergers" to get listed, Greifeld said. It required listing companies to reconcile their SEC reports with tax filings, and verify their cash balances. It hired an outside investigative firm to look into the background of applicants for listings and had an internal team investigate allegations of financial misstatements or fraud.
"In the last two years, the efforts of our team has directly led to the delisting of over 40 Chinese companies where there was evidence of fraud, financial misstatement, or other failures to satisfy our listing rules," Greifeld said in his letter to ABC News. "The results speak for themselves."
By the time some of the precautionary steps took effect at the U.S. exchanges, a great deal of money had already been lost.
Even some well-known names in the investment world were reported to be victims. The hedge fund run by John Paulson -- who is best known for predicting the collapse of the housing market -- was reported to have lost $468 million on an investment in Sino Forest, a company listed on a Canadian exchange that was accused of exaggerating its timber holdings. Starr International Co., a firm run by former American International Group CEO Maurice "Hank" Greenberg, sued China MediaExpress Holdings Inc. after he said he was deceived by the company's misleading financial statements. He had invested about $13.5 million in the company. Both companies disputed the allegations against them, but lost their stock exchange listings after fraud allegations surfaced.
Most victims were not Wall Street movers and shakers but small investors who held stock in China-based companies through personal investment accounts, mutual funds or pension funds. Al Smith, 65, the manager of a truck stop in Boise Idaho, told ABC News he lost much of his retirement savings -- about $60,000 -- when he took a chance on Puda Coal, a stock he said he found while researching investment information about Chinese companies.
He was on vacation when allegations surfaced that the coal company's CEO had sold off the coal mine without telling investors. By the time Smith got back to his computer to sell off his shares, trading in the stock had halted. His money was gone.
ABC News went to Puda Coal headquarters to attempt to speak with the company's chairman, Ming Zhao, but his assistant told the reporters that he had not been in the office in weeks, and they did not know when he would return. The SEC has also been pursuing Zhao, but has never received a reply, Schapiro said. She said Americans have little legal recourse -- Americans cannot sue companies in Chinese courts, and people like Zhao remain beyond the reach of the American justice system.
"I think it's astounding that … nothing really happens to this person over there," Smith said. "I don't understand that part. I really don't."
Smith's lawyer, Rob Prongay, who is overseeing a lawsuit against Puda Coal, said he believes a number of entities failed his client.
"Ultimately, there are a variety of people responsible for the harm investors have suffered as a result of investing in what turned out to be fraudulent Chinese companies," Prongay said. "In our view, the auditors, underwriters, and directors, are also liable for what occurred and we are attempting to maximize any potential recovery for the damaged investors."
Calls to the Chinese Embassy in Washington and emails sent to Ming Zhao's attorney in Beijing were not returned.
Schapiro said she too heard little in the way of a response from the Chinese government.
"We're working hard with the Chinese government to try to secure their cooperation for our enforcement investigations," she said. "But we're not going to wait for their cooperation. We are going to proceed and have proceeded to bring cases against more than 40 individuals and entities for fraud on U.S. investors from Chinese companies."
ABC News producer Karson Yiu contributed to this report from China. Stuart Johnson contributed to the reporting on this story as an intern in the ABC News investigative unit in Washington, D.C.